Creativity Key in Current Energy Deal Market

Energy deals have slowed in recent months, but there are still some transactions being completed. One of the keys to getting transactions done in a time of such uncertainty is creativity, says Pantheon’s head of natural resources, Evan Corley.

Corley highlighted the state of deals in the various segments of energy. The pace of upstream transactions has been impacted significantly, he says, and the oilfield services deal market has suffered. The broader midstream market for deals has slowed, Corley says, just as it has in upstream and oilfield services. “But,” he adds, “the distinction I would make is that I’ve seen a couple of transactions get done.”

Where there are transactions getting done, the buyers and sellers have had to be creative. “Across the board, people are forced to come up with interesting ways to get a deal done,” Corley says. “There haven’t been a ton of transactions, and there’s a question of whether or not these creative approaches will ultimately work. But at the end of the day, people are searching to do deals, and there’s not a lack of interest both from private equity firms and LPs.”

Pantheon is a global PE fund investor, and Corley relayed what he’s been seeing and hearing about energy from the GPs that the firm interacts with. The GPs are trying to understand when the fundamentals on the supply side might start to get better, he says. “Everybody’s waiting to see when we find the bottom. Almost everybody that we’ve talked to firmly believes there will be an inflection and prices will increase again.”

Most GPs seem to believe that the inflection point will take place in late 2015 or early 2016. The reaction to volatility has been mostly consistent, he adds, with a focus on making sure their portfolios are in good shape to weather the storm.

The majority of private equity players still believe in the long-term fundamentals associated with the sector and believe this is a short-term cycle.

“What I’ve heard is that a fair number of portfolios are in good shape, assuming there’s a strong response to oil prices in late 2015 and early 2016,” Corley says. “What’s going to be really interesting is the impact on private equity if oil prices are low for an extended period of time.”